Wine Claims

The Niagara region on the northeast U.S.-Canada border is home to more than 80 wineries.

Twenty years ago there was less than a third of that number. Thanks to local and international efforts—including enhanced growing techniques, a focus on a range of grape varieties appropriate for the soil and climate, as well as education on traditional and modern winemaking techniques—the Niagara region is now recognized throughout the world as a first-class area for wine products developed through increasingly sophisticated production methods.

The area is home to Brock University’s Cool Climate Oenology and Viticulture Institute, which is an internationally recognized research institute dealing with cool climate viticulture, oenology, wine business and wine culture. The Institute also trains many of Ontario’s winemakers and viticulturists through its various degree programs. Also in the area is the Niagara College Teaching Winery, which is the first of its kind in Canada. Both of these organizations have contributed to the Niagara area’s development of modern winemaking methods.

As with any industry, insurance claims do arise with wineries. Following is a brief overview on managing wine claims. The topic is summarized under these headings:

History of Wine

What is Wine

How Wine is made

Types of Claims

Insurance Coverage

Summary

History

The production of wine dates back thousands of years; as far back as 7,000 before the Common Era. For many years, wine was considered a drink of the elite ruling classes.

The impetus for wine production was not just its flavor and effects such as intoxication; there were health considerations as well. During much of human history there was neither the awareness of the need for nor the ability to produce clean, bacteria-free drinking water that would help prevent disease occurrence and transmission.

Wine was produced as a substitute for water, as the fermentation process involved in wine killed the harmful bacteria found in natural water supplies.

What is Wine?

Wine is an alcoholic beverage made from fermented grapes or other fruits. The main ingredient is ethanol–commonly known as alcohol. The natural chemical balance of grapes allows them to naturally ferment and make a high quality beverage without the addition of sugars, acids, enzymes or water.

It is yeast—a microscopic fungus—that consumes the sugars in the grapes and converts them into alcohol and carbon dioxide. Different varieties of grapes and strains of yeast produce different types of wine. Fermentation is basically a complex chemical reaction that is capable of being carefully controlled to produce many different styles of wine and other alcoholic beverages.

Because of the very nature of the product itself (vineyards are subject to weather patterns, alcohol is flammable, and beverages can spoil), wine’s production complexity and the machinery used to harvest, crush and ferment wine, a number of types of claims can arise from natural, accidental, or negligent causes.

How Wine is Made – A Simplified Description

Wine begins with grapes on the vine, which are harvested under the direction of the winemaker. The winemaker ultimately is responsible for all aspects of wine making, from harvesting to bottling and monitors the process through all of its stages.

Larger wineries will also have a viticulturist, who specializes in the science of grapevines, managing the vineyard, pruning, irrigation and pest control. Depending on the type of grape and the type of wine being produced, harvesting can be done by hand or by machine, or a combination of both.

Depending on the winery, the grapes may then also be sorted for quality. The grapes then go into a machine—a destemmer—that removes the stems, and they are then transferred into a fermentation vessel.

Red grapes are fermented with the skins on to extract colour and flavor from them, while white grapes are pressed to separate the juice from skins before fermentation. Commercial yeast is then typically added, although some wineries will use wild yeast, naturally present in the vineyard or winery.

During fermentation carbon dioxide is released as chemical by-product. After or toward the end of alcoholic fermentation, red wine and sometimes Chardonnay wine are moved to oak barrels to age and complete the maturation and flavoring process.

Not all wine goes into barrels; most white wines, for instance, complete their fermentation in large stainless steel tanks that have no affect on the wine’s flavor.

After a period of time of storage (which, depending on the vintage and style, is usually three to 24 months), the wine is bottled. Before bottling and during the maturation of the wine, it is monitored carefully for quality, and minute amounts of chemical additions such as sulphur dioxide are often used to help protect against spoilage. Also various fining agents are used to help clarify the wine and maintain quality.

Bottling involves pumping the wine out of the tank and putting it through a series of filters of varying sizes. It is then bottled—either at the winery or occasionally offsite— capped (normally with a natural or synthetic cork or a screwcap), labelled and stored.

To make sparkling wine the wine is bottled and then lightly corked. Some additional yeast is then added to the wine to produce the bubbles (carbon dioxide) and unique flavors. Note that while all Champagne is sparkling wine, not all sparkling wine is Champagne. Champagne is a controlled, specific region in France and only certain sparkling wine from that region may be labelled Champagne. Canadian sparkling wine by law can’t be called Champagne.

Sparkling wine is then put in cages in what are called “racks” and then turned upside down in a process known as riddling. Riddling is done over a period of weeks historically by hand, although today it is largely mechanised. This process forces the dead yeast to the bottom of the bottle, and the final process involves pulling out the “plug of yeast,” adding some additional wine or sweetener (the ‘dosage’), and then properly capping the bottle.

The previous description is a simplification of what can be a complicated, multistage scientific process that may take years—from initial grape harvest to final vintage bottling—to complete.

During the storage process, which includes the time the wine is in tank or barrel and after bottling, there are stringent requirements with regards to temperature control and exposure to oxygen. Depending on the product, wine will tolerate only a limited range of temperature before a loss in quality occurs; hot temperatures especially will adversely affect the wine.

In addition, exposing wine to substantial oxygen can affect its quality, and may result in oxidation and the growth of unwanted microbes, which themselves produce compounds that spoil a wine, including volatile acidity (“VA”; the main component of household vinegar).

Types of Claims

Wine can obviously be affected by some of the more common perils capable of affecting many beverage-related industries, including fire/explosion, freezing (wine will freeze if the temperature is low enough), improper storage and transport, vandalism, vehicle impact, employee error, and equipment failure.

In regard to fire damage, specifically from heat, wine must be stored at a specific temperature in a cooler. Depending on the product, this controlled temperature can range from 50 to 60 degrees Fahrenheit. As the temperature gets higher wine’s chemical properties drastically change, rendering the degraded wine unfit for human consumption. Conversely, wine that is frozen for a long period of time will also change its properties and become undrinkable.

Examples of employee error could involve hitting a fermentation or storage tank with a skid or a forklift truck, causing the tank to rupture or product to leak from the valve. We are aware of a claim where a winery lost approximately $50,000 in sparkling wine. In this claim, the winery employee forgot to lock the top of the cage of the rack for riddling, and as the riddling machine slowly turned over during a series of days the bottles fell out, crashing onto the floor.

Another case involved wine leaking from a tank valve. Around the valves, there are seals, and in this instance it appears the seals dried out over time and became compromised, allowing wine to leak out.

Less common perils involving wine are contamination, fraud and environmental damage.

In regard to contamination, the making of wine as outlined above is a chemical process. One also has to remember that there is not a pasteurization process in wine (as previously discussed, applying heat is going to adversely affect the product), thus the importance of high hygiene standards and rigorous monitoring of product is of utmost importance. Wine is also a food product, and thus obviously a consumable covered by food production regulations.

Many, if not all, food processing manufacturers have or should have a Standard Operating Procedure (SOP) for their hygiene operations. To summarize, an SOP outlines the hygiene standards for the cleaning of the plant and the equipment; this could include regular schedules and allowed chemicals for scrubbing down floors, cleaning/sterilizing equipment, keeping a maintenance log, and other periodic activities required to maintain acceptable levels of cleanliness.

Sometimes due to lack of funds, lack of education or lack of concern, proper SOPs are not present or enforced. This will at times allow unwanted yeast or bacteria to get into the product. This is not generally a concern with respect to someone getting ill, but makes for very unpleasant tasting wine.

There are numerous examples of unusable wines caused by improper hygiene. Examples include wine re-fermenting in the bottle when there is remaining yeast in the bottle, sometimes undesired particulate matter is clearly visible and/or the wine becomes accidentally carbonated. These situations are normally due to poor winery hygiene and/or less than stringent winemaking practices.

Wine can also have unacceptable VA levels if it’s not properly monitored during the fermentation and storage process, and there are legal limits of how much VA is allowable in wine; in Ontario these government regulations are enforced by the Canadian Vintners Quality Alliance (VQA) and the Liquor Control Board of Ontario (LCBO). High VA levels create terrible tasting wines, and wines with significant VA levels may then only be used as a base for vinegar.

Sometimes VA can be corrected by continuous monitoring and the careful addition of certain organic chemicals to bring the VA levels down.

In regard to winery fraud, this is not common but it has happened. For example a winery has a certain product line that either (1) was a consumable wine, but there was no market for it, or (2) was a poorly made wine, unfit to be marketed and of no use.

Situations have been encountered where the winery has been “vandalized”; mysteriously someone breaks in and opens up all the storage tank valves, allowing the product to literally go down the drain, and a later investigation finds that there was no market for this particular wine.

During the adjustment of wine claims it is important to bring an expert in early to ascertain the viability of the product (i.e., consumability). There have been instances in which the wine is simply being dumped down the drain as perhaps the VA level is too high and/or it has re-fermented, for example.

When investigating wine claims we will often ask for the following documents:

LCBO Audit Records (LCBO audits on a regular basis) to confirm quantities of wine in order to ensure collecting taxes

Vintners Quality Alliance Ontario (VQA) testing results

All logs and records of inspection

Analysis of the remaining product

Often it is helpful to call in a wine consultant who can obtain these records. In particular, the quality analysis is of greatest importance since it can determine if at the time of the particular loss the product was fit for sale.

Lastly is the environmental exposure. Although grape juice is basically considered a natural product, it can also be considered a pollutant due in part to its alcohol content, depending on the circumstance of how it is introduced into the environment. There have been situations where wine has escaped from the tank (e.g., due to alleged vandalism) and has gone into the drainage system of the winery, but then it was determined that the drainage went into a ditch and subsequently into the water supply for a nearby property.

Therefore, it is important to know where a product lost through a spill has gone and to ensure that it is at least contained within the insured’s own property.

Coverage

Insurance coverage usually provides for the standard perils of fire, vandalism, vehicle impact, unintentional employee error, etc. What most policies do not cover under the standard wordings is contamination. Contamination is a specific exclusion.

The contamination (for example) is written under, generally speaking, some type of food product endorsement where contamination is covered.

Again, generally speaking (the definition varies from policy to policy), contamination means the “unintentional alteration” of a good or beverage product (in this case the wine) or the introduction of a foreign material or substance into the food or beverage product (e.g., yeast) in such a way to render the food or beverage product unfit for intended human consumption. Additionally, contamination must be determined by a government authority.

In regards to wine, the LCBO is considered the most appropriate government authority for oversight on contamination and certain other causes of damage. As usually outlined in endorsements, there is a limit on the amount an insurer will cover in regards to loss due to contamination. This is usually a fraction of the overall stock limit.

Although we are dealing with wine as opposed to a non-consumable product, an insurer owes the least of either the cost of repair or replacing. In using the term “repair” in regard to wine, some wineries will attempt to remediate contaminated wines by re-filtering them. There are third-party firms that will re-filter the wine using reverse osmosis. This is often done where there are high VA levels. This additional filtering can sometimes work; however, it is not always effective. While the wine may be saved and is potable, the properties of the wine change as a result of re-filtering and/or this reverse osmosis process, and the style of the wine may be different from the original intention of the winemaker.

In regard to salvage, sometimes if the VA level can be brought down, a winery—without involving an insurer—will use this wine to make a blend. However, quite often the wine is too deteriorated, and is sold as vinegar for pennies on the dollar, if it can be sold, otherwise it has to be disposed by proper means. Replacing the product is not so easily done. For example, one cannot replace a 2009 vintage that was contaminated in 2013 with another 2009 vintage (there will be none available), nor will any replacement likely appeal to the same market or be of the identical quality and style.

Wine is very particular to the winery and the winemaker. Thus insurers will usually endorse what is called a Selling Price Endorsement. To summarize, coverage allows for the indemnification to the insured of the selling price less taxes and expenses that would not usually continue. Briefly, this would include, advertising, promotion and—depending the stage of the wine at the time of the incident (e.g., still in tanks or in bottles) less bottling and labelling costs.

Summary

Winemaking has evolved substantially over the years to the present day, where there is a significant amount of science involved throughout every stage of the process. Each winery and winemaker has their own preferences or techniques in the production of a wine as they strive to create their preferred style.

However, gone (or will be gone soon) are the days where wine is produced simply by taste, scent, experience and instinct without paying attention to the hygienic and scientific aspects of winemaking. As wine production becomes ever more precise and dependent upon sophisticated techniques (with less room for error) and often expensive, sometimes elaborate equipment, the potential for claims to occur can only increase. Hopefully, this article has offered some useful insight in the winemaking process and related claims events.

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